State workers are whiners - private sector workers in Ireland stomach the brunt of pay and pension cuts

Viewing the sequester controversy in the U.S. from this side of the Atlantic last week was a reminder of how much we have in common with you guys over there.

The financial crisis in Europe, in the wake of the global downturn, has been caused largely by governments (like in Ireland) that can't balance their spending with their revenue and that run massive, unsustainable budget deficits. And it's the same in the U.S.

You don't have to be Bill O'Reilly to see that America is in deep financial trouble, and that Uncle Sam's national debt simply cannot go on increasing at its present rate. It's got to the stage now where another trillion dollars hardly causes a raised eyebrow!

Just like here, the answer will be found in a balanced program of increased taxes and cutbacks in spending. President Obama wants more of the former and less of the latter, the Republicans vice versa.

There is certainly plenty of room for higher taxation at the upper end in the U.S., and that is something better off Americans are going to have to live with (unless they want to leave the debt problem to their children and grandchildren). Equally, there is a need for a major reduction in government spending in the U.S., and so far there is little evidence that Obama is willing to do that on the scale that is required.

But America is running out of road. Just like in Ireland, and in other European countries like Greece, Portugal, Spain, Italy and even France and Great Britain, a major re-balancing of the state finances is needed urgently in the U.S.

In some European countries, like Ireland and Greece, the day of reckoning has already arrived. Corrective action was forced on us by the IMF and the EU in return for enough bailout money to enable the country to function until we can get our finances back in balance. It was either that or turn into Argentina.

But the day of reckoning is also approaching in the U.S., probably faster than many people over there realize.

In Ireland, we've been though several years of so-called "austerity budgets" which cut spending and raised taxes and charges. And it's going to continue for at least another two years as we try to reduce the budget deficit down to a sustainable level of around three percent of GDP.

Getting the books to balance again has been made far harder for us by the mountain of private bank debt which was added to our national debt, something that was completely unjust and which was imposed on the Irish people to save European banks and the euro. At least in the U.S. you don't have that problem.

But there are many similarities in the situations on the two sides of the Atlantic. There are two big components in state spending, one being welfare programs or "entitlements" as O'Reilly calls them over there (that's when he's not ranting about it as "stuff for the folks").

There has to be major reform in that area both in the U.S. and even more so here. If Bill knew what goes on in Ireland with "entitlements" he'd have a seizure! That's something we'll be coming back to in this column in the weeks ahead.

This week, however, we want to look at the other huge part of state spending, which is state payroll. In the U.S., much of it is decided at individual state level. Here it's obviously decided at national level.

One of our problems is that in the past workers on the state payroll here have tended to see the state as a bottomless money pit.

In the private sector, market pressure dictates pay rates and efficiency levels. In the boom years pay in many industries (construction being the best example) shot up.

Since the downturn it has come down again just as quickly. Workers at all levels in companies under stress have accepted pay cuts, higher output demands and longer working hours so that their companies could show a profit and they could keep their jobs.

In spite of this, hundreds of companies have not survived and tens of thousands of workers in the private sector have lost their jobs.

In the state sector, the attitude is quite different. Insulated from the reality that faces workers in the private sector, the need for adjustment has been accepted reluctantly and slowly.

This can be seen again in the agreement with state workers which the government concluded with unions last week after lengthy negotiations. It's the second Croke Park Agreement (so-called because the talks were again held in meeting rooms in the famous sports stadium).

The agreement includes minor adjustments in pay and working hours, but nothing that reflects the scale of the crisis in the state finances. It's more of the same.

In 2010 in the first Croke Park Agreement covering the period 2010-2014, state workers gave a commitment to change the way they work so that both the cost and the number of people working in the public service could fall significantly, while continuing to meet the need for services (schools, hospitals, police, sanitation and so on).

In return for this no-strikes deal, the government gave commitments to the state workers that there would be no further reductions in their pay rates (they had lost around 14 percent over the previous two years) and there would be no compulsory job losses as long as state workers were flexible about redeployment.

In fact there has been only minor change across the public service over the past few years, in spite of the downturn. The old ways of doing things prevail, and the snail's pace of reform still means there are too many workers in some areas and not enough in others. An example would be the number of planning staff we have on the state payroll even though construction is at a virtual standstill.

Most people in the private sector believe that Croke Park I was a failure. They point to the big gap that now exists between pay in the state and private sectors and the way that high pay, inefficiencies and poor flexibility in staff movement and job responsibilities are still common in the state services. It's all completely out of step with what has happened in the private sector.

The second Croke Park Agreement was necessary because to meet our reducing budget deficit target under the bailout program the state needed to shave a further €1 billion off the €13 billion public sector pay bill.

Despite this small-scale adjustment (1/13th) many state workers are unhappy and it is still unclear whether Croke Park II will be accepted in all parts of the public service.

It's not just state pay and the failure to match the reductions that have happened in the private sector that make the rest of us angry. State workers also benefit from job security and generous guaranteed pensions that people in the private sector now can only dream about. State workers still don't seem to appreciate how priceless these things are in today's world.

Let me give you the latest example. Workers in Independent Newspapers, the biggest media group in Ireland formerly headed by Tony O'Reilly, have been through a program which has radically changed the way they work and what they get paid. The staff has shrunk to a fraction of what it was in O'Reilly's heyday; everybody works longer and harder for much less.

A particularly sore point is the pension fund, into which Independent staff have been putting just under 10 percent of their pay. It's stopped automatically from paychecks.

Because of the market collapse, this pension fund now has a huge deficit. Staff who have paid into it for years will be left with very little. There is some faint hope that "half pensions" can be paid, but even this is very uncertain.

A journalist or a printer who worked for the company for 40 years was supposed to get a pension of two-thirds of their final pay. So if they were on final pay of €60,000 a year, the pension would be €40,000. Under a half pension, it would be €20,000.

Most are likely to end up with a fraction of that. And since few people would have 40 years service, they would be getting much less anyway.

Bear in mind that Independent Newspapers was one of the country's leading companies. And this is not unusual. Pensions schemes in many big private companies have been decimated by the downturn.

Now contrast this with the news last week that new judges will have to serve 20 years in future before they can draw a full pension (at present they only have to serve 15 years!) And in future they will have to pay a 13 percent contribution towards their pension, instead of the current four percent.

The present arrangement was based on the idea that most lawyers work in the courts for years gaining valuable experience before they are appointed as judges, often in their fifties. So they say it's not their fault they only get to work 15 years as a judge before they retire on a full pension!

This, of course, is completely bogus. Most of them in their years as lawyers in the courts will have been paying into private pension funds. So they have that to rely on.

They don't need a full pension from the state after a mere 15 or even 20 years as a judge. The case would never stand up in court!

This kind of nonsense is rampant across the public service. Early retirement on full pension has been allowed in several areas (like the police), for example. And there are other deals that feather bed the pension arrangements for some state workers.

But the big bugbear is that despite the fact that pensions for so many workers in the private sector have been almost wiped out, pensions for state workers, guaranteed for life, have only been reduced by a few percent under Croke Park I and another few per cent under this new deal.

The very high pensions paid to management grades in the state sector will now be subjected to higher reductions. But only those on pensions of more than €32,500 will be affected.

In the private sector, to get that level of pension you need to have built up a savings pension pot of around €1 million!

There's one law for state workers. The rest of us can go whistle. And there's no point in complaining to a judge!